May 10, 2023 • 24 mins
The Model Money Transmission Modernization Act, also known as the Money Transmitter Model Law, is a single set of nationwide standards and requirements created by industry and state experts. We speak with two CSBS experts on money transmission to learn how this model law came to be, what it accomplishes and how it's being implemented nationwide.
Guests
Matt Lambert - Deputy General Counsel, Policy, CSBS
Camille Polson - Manager, Policy Development, CSBS
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Matt Longacre (00:12):
Alright everybody, welcome back to
simply stated, I am MattLongacre. I am your host today.
And today I'm joined by twospecial guests who work at CSBS.
I have Matt Lambert. He is ourdeputy general counsel of
policy. Matt, thanks for joiningus.
Matt Lambert (00:27):
Thank you for having me back, Matt. And
hopefully this is as successfulas our last one, which I think
was the leading podcast for CSBSin terms of listeners.
Matt Longacre (00:35):
Alright, so we'll get we'll keep our expectations
low here. And then. And then wealso have Camille Polson, who
works in policy development.
She's a manager here at CSBS.
Camille, thanks for joining us.
Camille Polson (00:45):
Thanks for having me.
Matt Longacre (00:46):
So today, we're talking about the Money
Transmission Modernization Act.
And there's a couple pieces thatthat that I'm really curious
about. But very briefly, beforewe begin, for the uninitiated,
what is a money transmitter?
Matt Lambert (01:02):
Thanks, Matt. And that's a really important
question. And there's a seriesof distinctions that go into it.
But ultimately, a moneytransmitter is someone that
takes hold or sends money forsomebody else, for the purpose
of taking, holding or sendingmoney to somebody else. What do
I mean by that? Well, if if yougo to the store and spend $100,
(01:25):
on groceries, you're givingmoney to the store, right?
You're buying goods forservices, or you're buying goods
or services. Conversely, if yougo to the grocery store and go
to the special counter, wherethere's a money transmission,
stand or register, you're givingthem money to send somewhere
else on your behalf. So thatposition of trust of giving
(01:49):
somebody your money, so thatthey can give it to somebody
else or hold it for you isultimately, what makes a money
transmitter. The one keydistinction that I'll add here
is that a money transmitter isnot a bank. A bank is not a
money transmitter, they areexplicitly exempt from all money
transmission laws, because theyare banks and subjected to a a
(02:10):
slew of chartering andregulatory requirements.
Matt Longacre (02:14):
We have a great podcast if anyone wants to go
back and look about what is alicense. And we talked about the
difference between a license anda charter. And that's a great
place to go if you want to learnmore about bank charters and why
they're so distinct. So back tomoney transmitters. My
understanding is that moneytransmitters or money services
businesses have changed a lotover the last decade or so. Help
(02:39):
me understand that, how havethey changed.
Matt Lambert (02:42):
So I think you can go back further than the past
decade to truly understand thedynamic changes that are
underway in this industry. Sofor 100 years, money
transmission was pretty simple.
Two ways to do it, I could giveyou money, and you could take it
somewhere, literally takingcash. You know, some of the
(03:04):
first money transmission lawswere when folks would give cash
to steamship operators thatwould take it across the ocean.
The other model was telegraph,basically have two safes at the
end of the wire and instructionsbetween the two. So, you know,
the telegraph evolved into phonelines and faxes, and God knows
(03:28):
what else. But that model stayedthe same. Until the 90s, really,
when the internet came aroundand provided various means of
sending information. So late90s, you've got internet wallets
popping up on the scene, youalso get prepaid cards and
(03:49):
magnetic stripes, again, atechnology that's not new, but
it's now being used to storevalue on a card as opposed to,
you know, two safes at the endof an electronic line. So, you
know, that kind of technologicalchange starting in the 90s
happened when the laws werewritten, ultimately for handing
(04:11):
cash over and bringing itsomewhere or putting
instructions into a telegraph.
Fast forward 10 years and thattechnology has exploded, the
number of companies that arelooking to get into this have
multiplied exponentially, yearover year. And the different
(04:33):
types of business models thatare out there range from again,
handing cash to somebody andbringing it across an ocean to,
you know, the most advancedtypes of internet-based
transactions that you can thinkof. And that's one of the key
things about the MoneyTransmission Modernization Act
and money transmitter lawsgenerally, it doesn't specify
what the technology is. It'sthat key activity of taking,
(04:56):
holding or sending money. Thatway as technology changes, the
law doesn't have to adapt.
Matt Longacre (05:03):
So you mentioned money's moving a lot more,
there's an exponential use theword exponential number of
companies and individualsengaged in this. You're not,
you're not exaggerating, whenyou say exponential increase in
the last couple of decades, whatdoes that mean?
Matt Lambert (05:16):
So when we look at the data we have in NMLS, the
number of companies that werelicensed in 40 or more states,
which is to say a nationalbusiness model, was 37 in 2015.
I have not seen the numbers for2023. But last year, it was over
90, I would expect it to be over100. And, you know, annually,
(05:39):
you just see that number,increasing year over year,
eventually, I think it has toplateau. But the number of
companies that are trying newways of servicing this market,
just continues to occur.
Matt Longacre (05:54):
All right. And so this is a significant point.
We're talking about licenses,charters and supervisors. who
supervises money transmitters?
And once we know who'ssupervising them, what are they
doing about all this rapidchange? Does the supervisory
supervisory model need tochange?
Camille Polson (06:12):
So short answer to that last question is yes.
And there's reason that theMoney Transmission Modernization
Act has come to be so statefinancial regulators are the
primary supervisors that licenseand regulate all of these
companies. And most of thenation's non-bank financial
sector, which includes moneytransmitters. So the regulation
(06:32):
of these companies, it ensuresyou know, that we don't run into
illicit finance, that consumerfunds are protected, it's very,
very important. And the stateregulators take it very
Currently, as we've talkedabout, each state has its own
seriously.
law and its own rules to licenseand regulate money transmission.
And as you know, this industryhas exponentially grown and
(06:54):
evolved, the state regulatorshave understood that some
changes need to be made astechnology advances, to not only
continue this protection ofconsumers, but also to enable
innovation and allow for thisnew technology to flourish in
this industry. So, you know, inorder to achieve this goal,
state regulators came togetherto discuss, you know, what can
(07:16):
we do to move forward and theyengaged in several different
initiatives. So, theseinitiatives to put it generally
is really streamliningapproaches to supervision,
licensure and examination acrossall 50 states, and we sort of
have grouped it under thisgreater concept of Networked
Supervision. And so the statesare working together through a
(07:39):
variety of avenues to get us toa point where everything is
streamlined, harmonized andeasier on the states to reduce
regulatory burden and burden onthe companies as well as they
try to comply with all of thesestandards.
Matt Longacre (07:57):
So you've led into the Money Transmission
Modernization Act here. Andthat's what I was going to ask
about. This is modellegislation. And for someone who
doesn't really know what thatis, it's you create a model, you
send it to the states, and, youknow, they implement it in the
way that best suits, you know,their legislative system. Tell
(08:17):
me how this model legislationcame to be.
Camille Polson (08:20):
So the long story, a lot of collaboration.
But, you know, it really startswith going back to 2018. And
that was when the FinTech andInnovation Advisory Council was
created. So essentially, thiscouncil was tasked with
providing state regulators witha number of recommendations
(08:42):
aimed at improving the nonbankfinancial industry sort of tying
back to these differentinitiatives. We talked about
earlier of what can the stateregulators do to modernize the
system and really help it moveforward. So among these
recommendations was a call for amore streamlined and harmonized
supervisory framework for themoney transmission industry. And
(09:04):
response to this, the Conferenceof State Bank Supervisors
created a group known as theregulatory industry clearing
house. And it basically broughttogether industry experts and
key state banking supervisors.
And together they drafted whatis now known as the Money
Transmission Modernization Act.
That is a very shortenedtimeline of a lot of
(09:27):
conversations that went back andforth. You know, they spent
months discussing not only thepain points of the current
system, but what is working,what are the successes and what
do we need to keep movingforward.
Matt Longacre (09:38):
So to make clear here, because for some people if
you know some things about modellegislation, sometimes model
legislation is a wish list of aparticular group that gets sent
around to state legislatures.
This sounds more like regulatorsand industry work together on
this idea before it wentanywhere else, so it's not
really one one advocacy groupdoing this. It's the regulators
(10:01):
speaking to their legislaturesIs that correct?
Camille Polson (10:06):
Regulators speaking to the industry experts
and their legislators reallygetting all the perspectives.
And because the most importantthought on the state regulators
mind was, we want to get thisright, you want to get this done
properly. And we realized thatthere are multiple perspectives
coming in that with these newtechnologies and companies that
(10:27):
we don't quite understand. So itwas very important to get
everyone involved.
Matt Lambert (10:30):
You know, what to Matt, this is an example of what
John Ryan was really focused atthe time was good government. We
need to sit down with peoplewith varying perspectives, hear
from them, work with them, getit on paper, and come to a
solution that works foreveryone. And that was not an
(10:52):
easy process. In fact, it wasarduous. It was very time
consuming. If you, you know, ifyou throw a dart at the Money
Transmission Modernization Act,which is over 50 pages, chances
are there's a story behind thatline and a long discussion that
was hashed out by a group ofregulators and industry
(11:12):
representatives in a veryprofessional manner. It just
took a long time and a lot ofcompromise to get to a place
where everybody was comfortable.
And that's what it takes to beengaged in good government. And
the next stage is at thelegislatures.
Matt Longacre (11:26):
So you led me right into my next point is that
legislation can be reallycomplex, you talk about 50
pages. Can you provide me just alayperson's summary of what's in
the MTMA? I mean, you know, ifyou're a money transmitter, you
might understand a lot more. Butif you're talking to a broader
financial audience, what's inthis thing?
Matt Lambert (11:47):
So if I'm talking to... I always use my mom as an
example, right? So my mom doesnot know what I do for a living,
but she knows that she has appson her phone where, where
they're holding money for her.
So I would say to my mom, one,you probably want to make sure
that whoever's holding yourmoney, whether it's on an app or
a card, or you know, some othermechanism that they are not
(12:10):
criminals. So there is alicensing process, which
involves a criminal backgroundcheck. And all sorts of checks
on business models, policies,procedures, making sure this
company is aboveboard. Sothat's, that's the licensing
process. Next, you want to makesure that they are financially
sound, you don't want to giveyour money to somebody that's
(12:31):
about to go bankrupt. So thereare what's called the three
legged stool. There's a lot ofdetails around it. But
basically, you have to have agood net worth, you have to hold
customer funds responsibly. Andyou have to have a bond. And
then lastly, exactly how doesthis company go about their day
to day business? How do theyensure that they are
(12:52):
transparent? So we've got thingslike receipt requirements,
refund requirements, etc. Andall that is to say, one, are
they aboveboard, that'slicensing to are they
financially sound? And three,their day to day operations? Are
they clear and obvious forconsumers and for regulators
(13:15):
when they come in and check onthem?
Matt Longacre (13:19):
So, to be clear, state regulators are already
looking at these things thatyou've just mentioned. But
you're making changes to how thelaw works around those things.
So how do these changes improvethe supervision of money
transmission? Do you have anygood examples of the changes in
(13:39):
the MTMA that make doing thatjob better for supervisors?
Camille Polson (13:44):
I mean, absolutely. When we talked about
earlier, the reduction ofregulatory burden, you know,
when we look at the moneytransmission Modernization Act,
and we look at state governmentand state regulators and their
resources, their capacitylevels, you know, by
streamlining and modernizingthese standards so that they are
the same across the board, weare able to leverage other
(14:07):
states that may have moreresources in a certain area. For
example, when you look at itDepartment of Banking, such as
Texas, they have a lot ofexaminers especially in certain
dedicated fields, that were ableto leverage their expertise for
some states that are muchsmaller. So it's really looking
at streamlining the process andallowing for sharing of
(14:32):
resources across the states.
Matt Lambert (14:33):
If you think about the three giant buckets that I
just described, if you're doinga background check on first
person, they're only one person,right? But they're subject to 50
state jurisdictions. So youcould look at that one person 50
different ways; that doesn'tchange the fact that they're
just one person. So if the 50states have one way of looking
(14:55):
at a person, they can rely onthe work one time so if Camille
does my background check, andit's going to work for Camille
and it's going to work for you,Matt, then why do you need to do
it? Same goes for financials,one balance sheet. If it's the
same company in multiple states,looking at those financials,
(15:15):
there's not necessarily value inassessing them differently if
the common standard is veryhigh.
And third, this, this is a funexample that that came about,
after multiple weeks ofdiscussions. This is one of
those areas where, you know, wedidn't know there was an issue.
And we we found one. So I'll usemyself as an example. I live in
(15:37):
Maryland. Right now we are inDC, and our internet service
provider is probably coming outof Virginia. So if I'm on my
phone, and I log on to apayments app and send you money,
Matt, who lives in Virginia,whose law applies? Hmm, good
(15:57):
question. We put together adefinition that makes clear that
the money transmitter can make areasonable assumption based on
my account information and notmy location, because it turns
out GPS location on your phoneis not always accurate. So right
now on the Wi-Fi, it says I'm inVirginia, I'm not. But the
(16:21):
company would know from theirCIP, which is, you know, the,
the onboarding process for anaccount that I am from Maryland.
And frankly, that's probablywhere I would issue a complaint
and where my personaljurisdiction would lie. So
that's one of the it's notoverly apparent, if you looked
through the MTMA for thatexample, and how it solved,
(16:42):
you're not really going to findit unless you're a nerdy lawyer
and you figure out the ins andouts. But that's one of those
things that the MoneyTransmission Modernization Act
solves for.
Matt Longacre (16:53):
So I almost don't need to ask this question.
Because you've kind of answeredit. We'll talk about supervisors
why this awesome matters to theindustry. But I'll ask it
anyways, in case you wantanything else in: Why is the
industry supportive of this?
What's in it for them?
Camille Polson (17:07):
having a company be able to be examined, for
example, right now, instead ofhaving to have redundant exams,
they could have a group ofstates go in and that
examination be accepted by otherstates, and then be able to move
forward with their businessmodel. You know, industry
stakeholders played an integralrole in, you know, developing
(17:30):
this model legislation and thislanguage, they're very
supportive of it, and theybrought their pain points to us.
And we worked hard to workthrough all of those. So they're
really looking forward to seeingthis pass in all 50 states.
Matt Lambert (17:44):
The non-intuitive fact is that the money
transmission Modernization Act,has a lot of increased standards
and requirements compared to alot of older money transmission
laws. Why would you be in favorof that if you're the industry?
Well, there is a value to doingthings once, doing it one time
(18:05):
correctly. And that ultimatelysaves you time on your day to
day activities. So if you have achange of control, which is to
say, if somebody that's kind ofin charge of your company,
leaves, for whatever reason,right now, you have to do a
50-state analysis of what youhave to do the Money
Transmission Modernization Actas more states adopted, they're
(18:28):
going to have to do that onetime, it's good, everybody's
going to know what they have todo. It's one form, it's one
compliance system. You can saythe same for financials,
receipts. Can you imagineprogramming receipts into
different agents that operate indifferent states? So if you, if
your agent is a grocery storethat's operating in 28 states,
and you're subject to 28,receipt requirements, that cost
(18:51):
a lot of money. And it's it'snot easy to do. And that problem
will go away as the MoneyTransmission Modernization Act
is adopted nationwide.
Matt Longacre (19:01):
So for regulators
system, easier to supervise,they can trust the expertise of
their colleagues and otherstates. For the industry, just
not having to do the same thingover and over again, for 50
different standards. But to getthere, this model legislation
needs to pass some version of itin each of these states. How is
(19:25):
progress on the implementationof this law passage of this law
going across the country? Whereare we?
Camille Polson (19:32):
So you know, the states have been putting in a
lot of work to get thisuniformly passed, when it was
formally approved by the Boardof Directors of CSBS in August
of 2021. That wasn't the besttiming for 2022 state
legislation. Even with that,though, we had one state of
passage in full in 2022 witheight states passing significant
(19:57):
provisions of the law. Here weare in 2023. We have 20 bills in
the 2023. Legislature. acrossthe states, we have two that are
fully enacted, we have threethat are enacting substantive
provisions. So these are alreadysigned by the governor, they
have effective dates. We havetwo bills that are currently at
(20:20):
the governor's office, we've gotour fingers crossed, but looking
very good. And then we have inaddition to that, we have about
13 other bills, as I said thatare introduced, nine of those
are the full MTMA four of thoseare substantive provisions of
MTMA. And when we say thesestates with substantive
(20:41):
provisions, we are in talks withthem. And they are have a
commitment to fullimplementation of the law, just
the matter of the way that statelegislation works and how things
need to go about. Sometimes youhave to do them in parts. But
we've talked about this a lot oftimes, you know, there are many
ways to reach the finaldestination. Two plus two equals
(21:02):
four, three plus one equalsfour, as long as we all get to
the final destination, which isthe full implementation of the
model law. That's our ultimategoal. Yeah.
Matt Lambert (21:11):
50 states is the goal 50 states is what we will
get to, and we'll do it withcomplete MTMAs. Because, you
know, that jurisdiction issue Iraised before GPS on phones, if
a legislature works in pieces,which is understandable, and
they don't have one piece of astrange little definition,
(21:33):
because doesn't make sense inisolation, that doesn't make it
into their bill, that GPSproblem still exists. So
there's, I call them hiddenbenefits. You know, they're
they're not obvious on theirface, there is no section that
says jurisdictional weird stuffwith GPS that gets fixed. You
know, it's, it's built into thelanguage of the law. So that's
(21:57):
why it's so important to havethe full MTMA fix, because the
sections speak to each other. Itis holistic, and it is a
complete solution. And when wehave 50 states that are using
it, it's going to be a safer,stronger money transmission
industry, with less regulatoryburden and more room for
innovation to serve customersand economies across the states.
Matt Longacre (22:19):
That's pretty amazing. It's I'm trying to do
the math in the back of my headwith your years, we're talking
about roughly half of statesalready have something
introduced or something in thepipeline. Is that about, right?
Yes. And you've got two statesthat are all the way across the
finish line, a few more statesthat are pretty close this year.
And we're talking about all ofthis in less than a calendar
year. Absolutely. That's prettyincredible. And that is just
(22:44):
proof in the pudding that you'veput a lot of work into this. And
regulators have put a lot ofwork into this.
Camille Polson (22:48):
That's just 2023. This is going to be a
multi-year process. We're stillin constant contact with our
industry stakeholders, and weget our state regulators
together in a forum to discuss,you know, any questions or
obstacles that pop up. So it'sreally collaborative, we've got
a lot of great support. Andwe're just looking forward to
what more we can do in the nextcoming years.
(23:09):
If you're interested in the MTMAmay reach out to myself, Camille
and Mary Pfaff at CSBS, who hasbeen handling our state
legislation. I'm on the phone.
I'm on emails every day withdifferent states, getting these
bills over the line. And we knowthat we are not done. So let's
keep going.
Matt Longacre (23:28):
Yep. And we will include a link to the MTMAand
all public documents in our shownotes. So Matt, Camille, thank
you so much. This was reallyeducational. I learned a lot.
Matt Lambert (23:39):
Thanks, Matt.
Alright everybody, welcome back to
simply stated, I am MattLongacre. I am your host today.
And today I'm joined by twospecial guests who work at CSBS.
I have Matt Lambert. He is ourdeputy general counsel of
policy. Matt, thanks for joiningus.
Matt Lambert (00:27):
Thank you for having me back, Matt. And
hopefully this is as successfulas our last one, which I think
was the leading podcast for CSBSin terms of listeners.
Matt Longacre (00:35):
Alright, so we'll get we'll keep our expectations
low here. And then. And then wealso have Camille Polson, who
works in policy development.
She's a manager here at CSBS.
Camille, thanks for joining us.
Camille Polson (00:45):
Thanks for having me.
Matt Longacre (00:46):
So today, we're talking about the Money
Transmission Modernization Act.
And there's a couple pieces thatthat that I'm really curious
about. But very briefly, beforewe begin, for the uninitiated,
what is a money transmitter?
Matt Lambert (01:02):
Thanks, Matt. And that's a really important
question. And there's a seriesof distinctions that go into it.
But ultimately, a moneytransmitter is someone that
takes hold or sends money forsomebody else, for the purpose
of taking, holding or sendingmoney to somebody else. What do
I mean by that? Well, if if yougo to the store and spend $100,
(01:25):
on groceries, you're givingmoney to the store, right?
You're buying goods forservices, or you're buying goods
or services. Conversely, if yougo to the grocery store and go
to the special counter, wherethere's a money transmission,
stand or register, you're givingthem money to send somewhere
else on your behalf. So thatposition of trust of giving
(01:49):
somebody your money, so thatthey can give it to somebody
else or hold it for you isultimately, what makes a money
transmitter. The one keydistinction that I'll add here
is that a money transmitter isnot a bank. A bank is not a
money transmitter, they areexplicitly exempt from all money
transmission laws, because theyare banks and subjected to a a
(02:10):
slew of chartering andregulatory requirements.
Matt Longacre (02:14):
We have a great podcast if anyone wants to go
back and look about what is alicense. And we talked about the
difference between a license anda charter. And that's a great
place to go if you want to learnmore about bank charters and why
they're so distinct. So back tomoney transmitters. My
understanding is that moneytransmitters or money services
businesses have changed a lotover the last decade or so. Help
(02:39):
me understand that, how havethey changed.
Matt Lambert (02:42):
So I think you can go back further than the past
decade to truly understand thedynamic changes that are
underway in this industry. Sofor 100 years, money
transmission was pretty simple.
Two ways to do it, I could giveyou money, and you could take it
somewhere, literally takingcash. You know, some of the
(03:04):
first money transmission lawswere when folks would give cash
to steamship operators thatwould take it across the ocean.
The other model was telegraph,basically have two safes at the
end of the wire and instructionsbetween the two. So, you know,
the telegraph evolved into phonelines and faxes, and God knows
(03:28):
what else. But that model stayedthe same. Until the 90s, really,
when the internet came aroundand provided various means of
sending information. So late90s, you've got internet wallets
popping up on the scene, youalso get prepaid cards and
(03:49):
magnetic stripes, again, atechnology that's not new, but
it's now being used to storevalue on a card as opposed to,
you know, two safes at the endof an electronic line. So, you
know, that kind of technologicalchange starting in the 90s
happened when the laws werewritten, ultimately for handing
(04:11):
cash over and bringing itsomewhere or putting
instructions into a telegraph.
Fast forward 10 years and thattechnology has exploded, the
number of companies that arelooking to get into this have
multiplied exponentially, yearover year. And the different
(04:33):
types of business models thatare out there range from again,
handing cash to somebody andbringing it across an ocean to,
you know, the most advancedtypes of internet-based
transactions that you can thinkof. And that's one of the key
things about the MoneyTransmission Modernization Act
and money transmitter lawsgenerally, it doesn't specify
what the technology is. It'sthat key activity of taking,
(04:56):
holding or sending money. Thatway as technology changes, the
law doesn't have to adapt.
Matt Longacre (05:03):
So you mentioned money's moving a lot more,
there's an exponential use theword exponential number of
companies and individualsengaged in this. You're not,
you're not exaggerating, whenyou say exponential increase in
the last couple of decades, whatdoes that mean?
Matt Lambert (05:16):
So when we look at the data we have in NMLS, the
number of companies that werelicensed in 40 or more states,
which is to say a nationalbusiness model, was 37 in 2015.
I have not seen the numbers for2023. But last year, it was over
90, I would expect it to be over100. And, you know, annually,
(05:39):
you just see that number,increasing year over year,
eventually, I think it has toplateau. But the number of
companies that are trying newways of servicing this market,
just continues to occur.
Matt Longacre (05:54):
All right. And so this is a significant point.
We're talking about licenses,charters and supervisors. who
supervises money transmitters?
And once we know who'ssupervising them, what are they
doing about all this rapidchange? Does the supervisory
supervisory model need tochange?
Camille Polson (06:12):
So short answer to that last question is yes.
And there's reason that theMoney Transmission Modernization
Act has come to be so statefinancial regulators are the
primary supervisors that licenseand regulate all of these
companies. And most of thenation's non-bank financial
sector, which includes moneytransmitters. So the regulation
(06:32):
of these companies, it ensuresyou know, that we don't run into
illicit finance, that consumerfunds are protected, it's very,
very important. And the stateregulators take it very
Currently, as we've talkedabout, each state has its own
seriously.
law and its own rules to licenseand regulate money transmission.
And as you know, this industryhas exponentially grown and
(06:54):
evolved, the state regulatorshave understood that some
changes need to be made astechnology advances, to not only
continue this protection ofconsumers, but also to enable
innovation and allow for thisnew technology to flourish in
this industry. So, you know, inorder to achieve this goal,
state regulators came togetherto discuss, you know, what can
(07:16):
we do to move forward and theyengaged in several different
initiatives. So, theseinitiatives to put it generally
is really streamliningapproaches to supervision,
licensure and examination acrossall 50 states, and we sort of
have grouped it under thisgreater concept of Networked
Supervision. And so the statesare working together through a
(07:39):
variety of avenues to get us toa point where everything is
streamlined, harmonized andeasier on the states to reduce
regulatory burden and burden onthe companies as well as they
try to comply with all of thesestandards.
Matt Longacre (07:57):
So you've led into the Money Transmission
Modernization Act here. Andthat's what I was going to ask
about. This is modellegislation. And for someone who
doesn't really know what thatis, it's you create a model, you
send it to the states, and, youknow, they implement it in the
way that best suits, you know,their legislative system. Tell
(08:17):
me how this model legislationcame to be.
Camille Polson (08:20):
So the long story, a lot of collaboration.
But, you know, it really startswith going back to 2018. And
that was when the FinTech andInnovation Advisory Council was
created. So essentially, thiscouncil was tasked with
providing state regulators witha number of recommendations
(08:42):
aimed at improving the nonbankfinancial industry sort of tying
back to these differentinitiatives. We talked about
earlier of what can the stateregulators do to modernize the
system and really help it moveforward. So among these
recommendations was a call for amore streamlined and harmonized
supervisory framework for themoney transmission industry. And
(09:04):
response to this, the Conferenceof State Bank Supervisors
created a group known as theregulatory industry clearing
house. And it basically broughttogether industry experts and
key state banking supervisors.
And together they drafted whatis now known as the Money
Transmission Modernization Act.
That is a very shortenedtimeline of a lot of
(09:27):
conversations that went back andforth. You know, they spent
months discussing not only thepain points of the current
system, but what is working,what are the successes and what
do we need to keep movingforward.
Matt Longacre (09:38):
So to make clear here, because for some people if
you know some things about modellegislation, sometimes model
legislation is a wish list of aparticular group that gets sent
around to state legislatures.
This sounds more like regulatorsand industry work together on
this idea before it wentanywhere else, so it's not
really one one advocacy groupdoing this. It's the regulators
(10:01):
speaking to their legislaturesIs that correct?
Camille Polson (10:06):
Regulators speaking to the industry experts
and their legislators reallygetting all the perspectives.
And because the most importantthought on the state regulators
mind was, we want to get thisright, you want to get this done
properly. And we realized thatthere are multiple perspectives
coming in that with these newtechnologies and companies that
(10:27):
we don't quite understand. So itwas very important to get
everyone involved.
Matt Lambert (10:30):
You know, what to Matt, this is an example of what
John Ryan was really focused atthe time was good government. We
need to sit down with peoplewith varying perspectives, hear
from them, work with them, getit on paper, and come to a
solution that works foreveryone. And that was not an
(10:52):
easy process. In fact, it wasarduous. It was very time
consuming. If you, you know, ifyou throw a dart at the Money
Transmission Modernization Act,which is over 50 pages, chances
are there's a story behind thatline and a long discussion that
was hashed out by a group ofregulators and industry
(11:12):
representatives in a veryprofessional manner. It just
took a long time and a lot ofcompromise to get to a place
where everybody was comfortable.
And that's what it takes to beengaged in good government. And
the next stage is at thelegislatures.
Matt Longacre (11:26):
So you led me right into my next point is that
legislation can be reallycomplex, you talk about 50
pages. Can you provide me just alayperson's summary of what's in
the MTMA? I mean, you know, ifyou're a money transmitter, you
might understand a lot more. Butif you're talking to a broader
financial audience, what's inthis thing?
Matt Lambert (11:47):
So if I'm talking to... I always use my mom as an
example, right? So my mom doesnot know what I do for a living,
but she knows that she has appson her phone where, where
they're holding money for her.
So I would say to my mom, one,you probably want to make sure
that whoever's holding yourmoney, whether it's on an app or
a card, or you know, some othermechanism that they are not
(12:10):
criminals. So there is alicensing process, which
involves a criminal backgroundcheck. And all sorts of checks
on business models, policies,procedures, making sure this
company is aboveboard. Sothat's, that's the licensing
process. Next, you want to makesure that they are financially
sound, you don't want to giveyour money to somebody that's
(12:31):
about to go bankrupt. So thereare what's called the three
legged stool. There's a lot ofdetails around it. But
basically, you have to have agood net worth, you have to hold
customer funds responsibly. Andyou have to have a bond. And
then lastly, exactly how doesthis company go about their day
to day business? How do theyensure that they are
(12:52):
transparent? So we've got thingslike receipt requirements,
refund requirements, etc. Andall that is to say, one, are
they aboveboard, that'slicensing to are they
financially sound? And three,their day to day operations? Are
they clear and obvious forconsumers and for regulators
(13:15):
when they come in and check onthem?
Matt Longacre (13:19):
So, to be clear, state regulators are already
looking at these things thatyou've just mentioned. But
you're making changes to how thelaw works around those things.
So how do these changes improvethe supervision of money
transmission? Do you have anygood examples of the changes in
(13:39):
the MTMA that make doing thatjob better for supervisors?
Camille Polson (13:44):
I mean, absolutely. When we talked about
earlier, the reduction ofregulatory burden, you know,
when we look at the moneytransmission Modernization Act,
and we look at state governmentand state regulators and their
resources, their capacitylevels, you know, by
streamlining and modernizingthese standards so that they are
the same across the board, weare able to leverage other
(14:07):
states that may have moreresources in a certain area. For
example, when you look at itDepartment of Banking, such as
Texas, they have a lot ofexaminers especially in certain
dedicated fields, that were ableto leverage their expertise for
some states that are muchsmaller. So it's really looking
at streamlining the process andallowing for sharing of
(14:32):
resources across the states.
Matt Lambert (14:33):
If you think about the three giant buckets that I
just described, if you're doinga background check on first
person, they're only one person,right? But they're subject to 50
state jurisdictions. So youcould look at that one person 50
different ways; that doesn'tchange the fact that they're
just one person. So if the 50states have one way of looking
(14:55):
at a person, they can rely onthe work one time so if Camille
does my background check, andit's going to work for Camille
and it's going to work for you,Matt, then why do you need to do
it? Same goes for financials,one balance sheet. If it's the
same company in multiple states,looking at those financials,
(15:15):
there's not necessarily value inassessing them differently if
the common standard is veryhigh.
And third, this, this is a funexample that that came about,
after multiple weeks ofdiscussions. This is one of
those areas where, you know, wedidn't know there was an issue.
And we we found one. So I'll usemyself as an example. I live in
(15:37):
Maryland. Right now we are inDC, and our internet service
provider is probably coming outof Virginia. So if I'm on my
phone, and I log on to apayments app and send you money,
Matt, who lives in Virginia,whose law applies? Hmm, good
(15:57):
question. We put together adefinition that makes clear that
the money transmitter can make areasonable assumption based on
my account information and notmy location, because it turns
out GPS location on your phoneis not always accurate. So right
now on the Wi-Fi, it says I'm inVirginia, I'm not. But the
(16:21):
company would know from theirCIP, which is, you know, the,
the onboarding process for anaccount that I am from Maryland.
And frankly, that's probablywhere I would issue a complaint
and where my personaljurisdiction would lie. So
that's one of the it's notoverly apparent, if you looked
through the MTMA for thatexample, and how it solved,
(16:42):
you're not really going to findit unless you're a nerdy lawyer
and you figure out the ins andouts. But that's one of those
things that the MoneyTransmission Modernization Act
solves for.
Matt Longacre (16:53):
So I almost don't need to ask this question.
Because you've kind of answeredit. We'll talk about supervisors
why this awesome matters to theindustry. But I'll ask it
anyways, in case you wantanything else in: Why is the
industry supportive of this?
What's in it for them?
Camille Polson (17:07):
having a company be able to be examined, for
example, right now, instead ofhaving to have redundant exams,
they could have a group ofstates go in and that
examination be accepted by otherstates, and then be able to move
forward with their businessmodel. You know, industry
stakeholders played an integralrole in, you know, developing
(17:30):
this model legislation and thislanguage, they're very
supportive of it, and theybrought their pain points to us.
And we worked hard to workthrough all of those. So they're
really looking forward to seeingthis pass in all 50 states.
Matt Lambert (17:44):
The non-intuitive fact is that the money
transmission Modernization Act,has a lot of increased standards
and requirements compared to alot of older money transmission
laws. Why would you be in favorof that if you're the industry?
Well, there is a value to doingthings once, doing it one time
(18:05):
correctly. And that ultimatelysaves you time on your day to
day activities. So if you have achange of control, which is to
say, if somebody that's kind ofin charge of your company,
leaves, for whatever reason,right now, you have to do a
50-state analysis of what youhave to do the Money
Transmission Modernization Actas more states adopted, they're
(18:28):
going to have to do that onetime, it's good, everybody's
going to know what they have todo. It's one form, it's one
compliance system. You can saythe same for financials,
receipts. Can you imagineprogramming receipts into
different agents that operate indifferent states? So if you, if
your agent is a grocery storethat's operating in 28 states,
and you're subject to 28,receipt requirements, that cost
(18:51):
a lot of money. And it's it'snot easy to do. And that problem
will go away as the MoneyTransmission Modernization Act
is adopted nationwide.
Matt Longacre (19:01):
So for regulators
system, easier to supervise,they can trust the expertise of
their colleagues and otherstates. For the industry, just
not having to do the same thingover and over again, for 50
different standards. But to getthere, this model legislation
needs to pass some version of itin each of these states. How is
(19:25):
progress on the implementationof this law passage of this law
going across the country? Whereare we?
Camille Polson (19:32):
So you know, the states have been putting in a
lot of work to get thisuniformly passed, when it was
formally approved by the Boardof Directors of CSBS in August
of 2021. That wasn't the besttiming for 2022 state
legislation. Even with that,though, we had one state of
passage in full in 2022 witheight states passing significant
(19:57):
provisions of the law. Here weare in 2023. We have 20 bills in
the 2023. Legislature. acrossthe states, we have two that are
fully enacted, we have threethat are enacting substantive
provisions. So these are alreadysigned by the governor, they
have effective dates. We havetwo bills that are currently at
(20:20):
the governor's office, we've gotour fingers crossed, but looking
very good. And then we have inaddition to that, we have about
13 other bills, as I said thatare introduced, nine of those
are the full MTMA four of thoseare substantive provisions of
MTMA. And when we say thesestates with substantive
(20:41):
provisions, we are in talks withthem. And they are have a
commitment to fullimplementation of the law, just
the matter of the way that statelegislation works and how things
need to go about. Sometimes youhave to do them in parts. But
we've talked about this a lot oftimes, you know, there are many
ways to reach the finaldestination. Two plus two equals
(21:02):
four, three plus one equalsfour, as long as we all get to
the final destination, which isthe full implementation of the
model law. That's our ultimategoal. Yeah.
Matt Lambert (21:11):
50 states is the goal 50 states is what we will
get to, and we'll do it withcomplete MTMAs. Because, you
know, that jurisdiction issue Iraised before GPS on phones, if
a legislature works in pieces,which is understandable, and
they don't have one piece of astrange little definition,
(21:33):
because doesn't make sense inisolation, that doesn't make it
into their bill, that GPSproblem still exists. So
there's, I call them hiddenbenefits. You know, they're
they're not obvious on theirface, there is no section that
says jurisdictional weird stuffwith GPS that gets fixed. You
know, it's, it's built into thelanguage of the law. So that's
(21:57):
why it's so important to havethe full MTMA fix, because the
sections speak to each other. Itis holistic, and it is a
complete solution. And when wehave 50 states that are using
it, it's going to be a safer,stronger money transmission
industry, with less regulatoryburden and more room for
innovation to serve customersand economies across the states.
Matt Longacre (22:19):
That's pretty amazing. It's I'm trying to do
the math in the back of my headwith your years, we're talking
about roughly half of statesalready have something
introduced or something in thepipeline. Is that about, right?
Yes. And you've got two statesthat are all the way across the
finish line, a few more statesthat are pretty close this year.
And we're talking about all ofthis in less than a calendar
year. Absolutely. That's prettyincredible. And that is just
(22:44):
proof in the pudding that you'veput a lot of work into this. And
regulators have put a lot ofwork into this.
Camille Polson (22:48):
That's just 2023. This is going to be a
multi-year process. We're stillin constant contact with our
industry stakeholders, and weget our state regulators
together in a forum to discuss,you know, any questions or
obstacles that pop up. So it'sreally collaborative, we've got
a lot of great support. Andwe're just looking forward to
what more we can do in the nextcoming years.
(23:09):
If you're interested in the MTMAmay reach out to myself, Camille
and Mary Pfaff at CSBS, who hasbeen handling our state
legislation. I'm on the phone.
I'm on emails every day withdifferent states, getting these
bills over the line. And we knowthat we are not done. So let's
keep going.
Matt Longacre (23:28):
Yep. And we will include a link to the MTMAand
all public documents in our shownotes. So Matt, Camille, thank
you so much. This was reallyeducational. I learned a lot.
Matt Lambert (23:39):
Thanks, Matt.
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